Revenues and Gross Margins up at Power Integrations

July 21, 2005 by Jeff Shepard

Power Integrations (San Jose, CA) has announced its financial results for the quarter ended June 30, 2005. Net revenues for the quarter were $35.3 million, up 3 percent compared to the prior quarter and down 2 percent from the year-ago quarter. Net income for the quarter was $5.0 million, or $0.16 per diluted share, compared to $4.7 million or $0.15 per diluted share in the prior quarter and $5.0 million or $0.15 per diluted share in the year-ago quarter.

The company's results for the second quarter included an adjustment to the company's reserve for sales returns. This adjustment increased net revenues by $0.9 million and increased net income by $0.4 million, or $0.01 per diluted share.

Gross margin for the second quarter was 48.9 percent, up from 48.3 percent in the prior quarter and 46.0 percent in the year-ago quarter. Operating margin was 16.9 percent, up from 16.7 percent in the prior quarter and down from 18.0 percent in the year-ago quarter. Operating expenses included $0.8 million in costs related to patent litigation, up from $0.5 million in the prior quarter and $0.1 million in the year-ago quarter. Excluding patent-litigation expenses, the company's operating margin and earnings would have been higher by 2.4 points and $0.02 per share, respectively.

"Revenues and earnings for the quarter were in line with our expectations, and we improved our gross margin despite a pricing environment that remains highly competitive," said Balu Balakrishnan, president and CEO of Power Integrations. "We also achieved a 10 percent reduction in our inventories, increased our cash balance and completed our share repurchase program.

"We had the best quarter in our history in terms of design wins, highlighted by increased traction with our LinkSwitch™ and DPA-Switch™products," continued Balakrishnan. "LinkSwitch design wins in the second quarter included a high-volume design for a major cell phone OEM, as well as a cordless phone design and a number of consumer and industrial applications. With DPA-Switch, we won a high-volume design with the leading supplier of IP phones. This is our largest win to-date with DPA-Switch and a significant beach-head for us in the rapidly growing Power-over-Ethernet market."

Additional highlights included:

Cash and investments at June 30, 2005 totaled $124.2 million, up $1.5 million from the prior quarter. During the second quarter, the company used $8.1 million in cash to repurchase 373,000 shares, completing the company's $40 million share repurchase program. During the program, which was announced in October 2004, the company repurchased 2.0 million shares at an average price of $19.67.

Revenue mix by market for the second quarter was: 33 percent consumer, 30 percent communications, 21 percent computer, 10 percent industrial, and 6 percent other. Product revenue mix for the quarter was 56 percent TinySwitch™-I and TinySwitch™-II, 28 percent TOPSwitch™-FX and TOPSwitch™-GX, 12 percent TOPSwitch™-I and TOPSwitch™-II and 4 percent LinkSwitch and DPA-Switch.

Power Integrations received 7 U.S. patents during the quarter, bringing the company's total to 126 U.S. and 82 foreign patents.

Looking forward, the company anticipates that its net revenues for the third quarter will increase at a rate between 4 percent and 10 percent compared to second-quarter revenues. The company expects that its gross margin for the third quarter will be approximately 49 percent. Operating expenses are expected to increase between 7 percent and 9 percent sequentially, driven primarily by patent-litigation costs, which are expected to total approximately $1.5 million in the third quarter. The company expects earnings per share for the third quarter to be in the range of $0.15 to $0.18.